Top E.U. Banks Told to Write "Living Will"

Top banks in the European Union
must present so-called "living wills" by the year-end spelling
out how they would survive a crisis without taxpayer aid.

Top banks in the European Union
must present so-called "living wills" by the year-end spelling
out how they would survive a crisis without taxpayer aid.

The requirement will affect 39 named banks, 15 of whom have
started drafting recovery plans, or living wills, under guidance
of the global Financial Stability Board (FSB), the European
Banking Authority said on Wednesday.

"The plans shall be submitted to the respective competent
authorities and discussed within colleges of supervisors."

Living wills, which can run to several thousand pages, set
out how a bank would top up funding and capital levels that
become depleted. They show how key parts of the business could
be hived off or closed down quickly so core services, such as
payment systems, are maintained.

The documents are written by banks for regulators who decide
if they are workable or if internal restructuring at the bank is
needed.

The EU has proposed a law to manage cross-border banks in
trouble that includes a requirement for lenders to draw up
living wills.

The EBA has put pressure on banks to draft the will by the
end of the year in case of a delay in approving the law.

The FSB, a regulatory task force for the Group of 20 (G20)
leading economies, has already set out a framework that includes
extra capital requirements, closer supervision and cross-border
recovery and resolution plans for the world's 28 most
systemically important banks.

Regulators hope that forcing banks to draw up living wills
will tackle the "too big to fail" problem of lenders being able
to borrow cheaply because markets believe they would always be
rescued by government if in trouble because they were too
complex to be wound up easily.